The legal process that banks and mortgage companies use to force the sale of your home to repay a debt; usually the mortgage on your home. Even if one payment is missed the lending institution can take the property back and then sell it to repay the money owed them. A foreclosure notice is typically filed after three or four payments are missed.

Each state governs the foreclosure process differently. As a minimum, the law requires that the borrower receive sufficient warning or notice before the foreclosure can take place. Other rights and responsibilities may be outlined in the mortgage or loan documents you signed when you purchased the home. Here is a complete list of each state’s foreclosure process

Up3. Do I have any options and if so, how much time do I have to exercise my options?

You have several options available to you as long as you own your home. Once your house is sold, whether by you or through foreclosure, many of your options disappear.

Knowing what your options are, puts you in a much stronger position to deal effectively with the foreclosure process. Armed with the right information, you may be able to save your home from foreclosure and, in some instances, avoid the foreclosure process altogether.

Up4. I get letters and notices from people claiming they can help me save my home – are they for real?

When foreclosure documents are filed they become a matter of public record and many people review these records for various purposes such as compiling lists to sell to bankruptcy attorneys, investors, real estate professionals and other people interested in either purchasing your home or . . . helping you save it.

Some of these offers are probably legitimate but, none of them have your best interest at heart. Never forget that these offers come from people who are in the business of making a profit from your foreclosure situation! See more information below on scams and how to avoid them.

If your lender is unwilling to work with you then I highly recommend hiring a 3rd Party Foreclosure Specialists. These are experts who know the laws in your state and can quickly convince your lender to work out a repayment plan to save your home.

Up6. I would rather sell my home than lose it to foreclosure . . . is this possible?

Yes! It’s called the Compromise Sale or the “Short Sale” and a foreclosure notice does not prohibit you from selling your home as long as you own it. However, you must act quickly and select the right real estate professional, one well versed in these type of sales.

Up7. I don’t want to keep the house nor bother with trying to sell it. What would happen if I just walked away?

There is a legal process for walking away from your home or forfeiting your property. You should seek the advice of a and a real estate professional well versed in this area because you could face catastrophic consequences if you just walk away.

While the actual process may vary from state to state, typically a trustee is appointed and announces the sale by aution of your home by informing the public. The usual announcement includes the name of the lending institution, who the borrower(s) is/are, the amount of overdue debt, and your total indebtedness.

After a specific period of time, the trustee opens the bidding process, (in some states your lending institution may do this). Then, either someone purchases the property or it reverts back to the lending institution. Once the property is sold or reverts back to the lender, the eviction process begins!

Your lender agrees to accept less than the total owed in exchange for releasing the mortgage as a lien on the property. (it’s also called pre-foreclosure sale, short sale, pre-sale and compromise sale).

Yes! Banks are not in the business of owning or selling homes and they do not like to foreclose on property because it’s expensive and they usually lose money. They must prepare the home for sale, hire a real estate agent to sell it, and until it’s sold, it remains a non-producing asset on their books. The lending institution would rather take a loss on the home than have it remain on their books as a non-producing asset. (see next question on profit)

Yes! Any amount over the total debt owed will be paid to you upon the transfer of ownership (closing).

However, if they sell it for less, the balance is called a deficiency and your bank can use whatever means they deem necessary to collect the outstanding balance. Most states treat this as an unsecured debt (just like credit card debt) and give the bank (or creditor) the same legal rights to pursue you, usually by suing you in court.

Anyone, including yourself can bid at the auction. However, some states require a cashiers check in the amount of the purchase price or bid, some states require a deposit and the ability to fund within a specified period of time as required under the terms of the contract. See these State Foreclosure Processes

If you fail to pay your property taxes the city to whom the taxes are due can foreclose through a Sheriffs Sale. Some cities will use this option after one year of non paid taxes while other cities may wait 3 years or more. Additionally, any creditor or lien holder can use this option once you default on a loan. However, any overdue taxes are paid first, then first, second, etc. mortgages are paid before any other leins or judgments can be paid.

Typically you’ll get 3 days notice! Most banks will start the eviction process immediately after the foreclosure process but the FHA, HUD and VA are usually much slower. If you own rental property, your tenants will normally be given 30 days notice. If you need more time than given, contact your lending institution immediately to ask for an extension.

Yes! If your willing to fight for it. Knowing and understanding what options are available to you is the first step. The most utilized option is Bankruptcy. Other options include refinancing and reinstatement of the loan using one of these options.

Your success depends on you implementing the proper option in a timely manner.

Foreclosure may occur. This is the legal means that your lender can use to repossess (take over) your home.

When the actual foreclosure happens you must move or you’ll be evicted anyway. Also, you may still owe the lender if they sell the house for less than you owe. You do have several options but because foreclosure or a deficiency judgment could seriously affect your ability to qualify for credit in the future, you should avoid foreclosure it if all possible!

Contact your lender immediately, explain your situation and why you are having trouble making your payments. Provide them with your monthly income and expenses . . . be honest! Do not not ignore the letter!

Do not move out of your home! If you do, it may be considered abandoned and cause you to not qualify for assistance.

Contact a HUD-approved housing counseling agency. Call (800) 569-4287 or TDD (800) 877-8339 or go online for the housing counseling agency nearest you. These services are usually free of charge.

If you bought your home with a Veterans Administration (VA) guaranteed loan, see Veterans Services for more information or call the VA office nearest you.

Special Forbearance
Your lender may be able to arrange a repayment plan based on your financial situation. Your lender may even provide for a temporary reduction or suspension of your payments. You may qualify for this if:

You have recently lost your job or source of income or;

You had an unexpected increase in living expenses.

You must furnish information to your lender to show that you would be able to meet the requirements of the new payment plan.

Mortgage Modification
You may be able to refinance the debt and/or extend the term of your mortgage loan. This may help you catch up by reducing the monthly payments to a more affordable level. You may qualify if you have recovered from a financial problem but your net income is less than it was before the default (failure to pay).

Partial Claim
Your lender may be able to work with you to obtain an interest-free loan from HUD to bring your mortgage current.

You may qualify if:

your loan is at least 4 months delinquent but no more than 12 months delinquent;

your mortgage is not in foreclosure; and

you are able to begin making full mortgage payments.

When your lender files a Partial claim, HUD will pay your lender the amount necessary to bring your mortgage current. You must execute a promissory note, and a Lien will be placed on your property until the promissory note is paid in full. The promissory note is interest-free and will be due if you sell or leave your property, or when your mortgage matures.

Pre-foreclosure Sale
This will allow you to sell your property and pay off your mortgage loan to avoid foreclosure and damage to your credit rating.

You may qualify if:

the “as is” appraised value is at least 70% of the amount you owe and the sales price is 95% of the appraised value;

the loan is at least 2 months delinquent prior to the pre- foreclosure sale closing date; and

you are able to sell your house within 3 to 5 months (depending on what your lender agrees to).

An additional benefit to this option is the assistance you will receive with the seller-paid closing costs.

Deed-in-lieu of foreclosure.
As a last resort, you may be able to voluntarily “give back” your property to the lender. This won’t save your house, but it will help your chances of getting another mortgage loan in the future.

You can qualify if:

you are in default and don’t qualify for any of the other options;

your attempts at selling the house before foreclosure were unsuccessful; and

You can usually spot a scam because it sounds too simple or too good to be true.

If you’re selling your home without professional guidance, beware of buyers who try to rush you through the process. Unfortunately, there are people who may try to take advantage of your financial difficulty.

Be especially alert for the following:

Equity skimming. In this type of scam, a “buyer” approaches you, offering to get you out of financial trouble by promising to pay off your mortgage or give you a sum of money when the property is sold. The “buyer” may suggest that you move out quickly and deed the property to him or her. The “buyer” then collects rent for a time, does not make any mortgage payments, and allows the lender to foreclose. Remember that signing over your deed to someone else does not necessarily relieve you of your obligation on your loan. See Question 22; Avoiding Scams

Phony counseling agencies. Some groups calling themselves “counseling agencies” may approach you and offer to perform certain services for a fee. Most of the time these services are things you can do such negotiating a new payment plan with your lender, or pursuing a pre-foreclosure sale.

Beware of any loan assumption where you are not formally released from liability for your mortgage debt and contracts of sale.

Check with an attorney and a real estate professional or your lender before entering into any deal involving your home.

If you’re selling the house yourself to avoid foreclosure, check to see if there are any complaints against the prospective buyer. You can contact your state’s Attorney General, the State Real Estate Commission, or the local District Attorney’s Consumer Fraud Unit for this type of information.

No. Only a court order, called eviction, can force you to leave your home. The lender must file a foreclosure notice first, and then, only after the foreclosure process is complete, can the bank start eviction proceedings.

It’s a two-step process: pre-foreclosure and formal foreclosure. The process is basically the same for every state. See State Foreclosure Process for your state’s specific procedures.

Pre-foreclosure

You miss a payment (it usually takes 3 or 4 missed payments to kick off a foreclosure process)

The bank sends you late notices and, if you fail to respond, they attempt to contact you (in writing or by phone) to resolve situation.

You continue to miss payments and, you and the bank, fail to agree upon payment arrangements.

The bank invokes the acceleration clause and demands the mortgage or lien be paid in full. Now you are legally obligated to immediately pay the full amount plus back interest, late fees, and any legal fees incurred by the lender.

You have made no payments or arrangements acceptable to the bank.

Note: Once you reach this stage, the bank will not accept your regular monthly payments but will instead, demand much higher payments to bring your loan current.

Formal Foreclosure Process

You receive a formal foreclosure notice, either by certified mail, or in many states, by the local sheriff.

The lender begins foreclosure action in court.

Legal notices are published in local papers.

You still have not been able to reach a payment or settlement arrangement with the lender.

Your notice and waiting periods expire.

The court holds a hearing regarding the bank’s claim.

The court issues a foreclosure order. This gives the bank the legal right to sell the home.

Legal notice of actual foreclosure sale and advertisements published in local papers.

You still have not been able to reach a payment or settlement agreement with the lender.

The house is sold at auction to the highest bidder or not sold and the bank takes possession of the home.

You move out or the bank or new owner evicts you.

You are notified of any debt still outstanding as a result of the sale. (i.e. the home is sold for less than you owe)

The bank or new owner goes to court to ask for a hearing to decide if and when you should be evicted.

At the hearing the judge decides whether or not you should be evicted and if evicted, how long you can stay before moving out. (offering to pay rent will often sway the judge to grant you more time)

If the judge decides you are to be evicted, most states allow you 10 days to appeal the decision.

Once the court orders your eviction and you have not moved out by the court designated date, the bank or new owner may obtain an execution of the eviction judgment which gives the sheriff the right to physically remove you from the premises.

The sheriff gives you between 24 to 72 hours (depending on your state) notice to move.

You still refuse to move so, the sheriff physically moves you. (resist now and you face being arrested)

Anything left in the house is packed and moved into storage. (to get your stuff back you’ll have to pay the storage fees and any additional associated fees)

The national average is 8 weeks from the day you are given the eviction notice until a sheriff shows up to move you. It could take six months or more but . . . be prepared because it could be as soon as a week!

This was an law passed during World War II to protect active duty military members from financial difficulty. One portion of the law may be able to stop foreclosure for anyone on active duty if they meet certain requirements outlined in the Soldiers and Sailors Act.

First, all real estate taxes are paid. Then first, second, third etc., mortgages are paid. Next comes any lien holders or attaching creditors. Finally, you’ll get any money left over after all debts are satisfied.

This applies only if you have a second, third, or more mortgages! If the lender holding your first mortgage forecloses then the second, third and so forth lenders no longer hold any right or title to your home. Although, you will probably still owe them money, they have no security interest in the home nor any right to foreclose on the home.

However, if you buy your own home back at the foreclosure auction, the debt may “merge” back (reattach) to the property, as if the foreclosure never happened.

Note: If you file chapter 7 bankruptcy prior to the foreclosure sale and receive a discharge (released from all debts) you will not owe any money and the lenders will no longer hold a security interest in your home.

This varies by state. Many do not have a redemption period except when your house is sold at a sheriff’s sale or for back real estate taxes. See State Foreclosure Process for redemption periods.

Up34. What’s the difference between a foreclosure and a sheriff’s sale?

Foreclosure sales are auctions held by the mortgage holder while a sheriff’s sale is held by a lien holder or attaching creditor.

Qualifications for a Short Sale

Before you eagerly climb aboard the short sale bandwagon, consider the following to determine whether you may qualify for a short sale. If you cannot answer yes to all four requirements, you may not qualify for a short sale.

The Home’s Market Value Has Dropped. Hard comparable sales must substantiate that the home is worth less than the unpaid balance due the lender. This unpaid balance may include a prepayment penalty.

The Mortgage is in or Near Default Status.It used to be that lenders would not consider a short sale if the payments were current, but that is no longer the case. Realizing that other factors contribute to a potential default, many lenders are eager to head off future problems at the pass.

The Seller Has Fallen on Hard Times. The seller must submit a letter of hardship that explains why the seller can not pay the difference due upon sale, including why the seller has or will stop making the monthly payments.A few examples that do NOT constitute a hardship are:

Bad purchase decisions. Blowing your paycheck on a home theater system with surround sound does not qualify as a hardship.

Unhappy with the neighbors. Even if every home on your block has turned into pot growing houses, that will not qualify as a hardship.

Buying another home. The lender will not care if you have decided the home is no longer suitable for you or your family.

Pregnancy. Increasing the size of your family or starting a family is not considered a hardship.

Moving into an apartment. If you decide to move out of your home, that is a lifestyle decision and not a very good reason to abandon your home.

Examples of hardship are:

Unemployment

Divorce

Medical emergency / sudden illness

Bankruptcy

Death

The Seller Has No AssetsThe lender will probably want to see a copy of the seller’s tax returns and / or a financial statement. If the lender discovers assets, the lender may not grant the short sale because the lender will feel that the seller has the ability to pay the shorted difference. Sellers with assets may still be granted a short sale but could be required to pay back the shortfall. For example, if the seller has cash in a savings account, owns other real estate, stocks, bonds or even IRA accounts, the lender will most likely determine that the seller has assets. However, the lender might discount the amount the seller is required to pay back.Many entities profit from short sales, but there is no sellere short sale profit.

Short Sale Consequences

A short sale is dependent on a buyer making an offer to purchase. If you do not receive an offer, you will not qualify for a short sale. So even if you meet all the other criteria, it is possible that no one will buy the short sale. It is also dependent on the lender accepting the buyer’s offer. If the lender rejects the offer, a short sale will not take place.

Tax Consequences If the lender agrees to the short sale, the lender may possess the right to issue you a 1099 for the shorted difference, due to a provision in the IRS code about debt forgiveness. Many situations are exempt from debt forgiveness, according to the Mortgage Forgiveness Debt Relief Act of 2007. You should speak to a real estate lawyer and a tax accountant to determine the amount of short sale tax consequences, and whether you can afford to pay those taxes, if any.

Blemished Credit Report While a short sale will not show up on your credit report, the loan status will. For those in default, it’s a pre-foreclosure that has been redeemed, which is often reported as Paid in Full for Less Than Agreed. Short sales affect credit ratings. While the damage to your credit report may not seem as significantly bad as a foreclosure to you, creditors may not make the distinction.